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Gamers Hit Pause as They Wait for New Formats

20 Apr, 2006 By: John Gaudiosi

Video game sales took a tumble in March for the seventh consecutive month, continuing a lull as consumers transition from the current generation of game consoles to next-generation devices like Xbox 360 and, due in the fall, PlayStation 3 and Revolution.

Combined video game hardware and software sales brought in $819 million, down 16% from March 2005. Hardware sales were off 31%, at $220 million, while software sales dipped 8%, to $499 million. Game accessories brought in $100 million, 11% less than March 2005.

Meanwhile, sales of next-gen games for Xbox 360, PSP and Nintendo DS brought in $170 million, according to Wedbush Morgan Securities analyst Michael Pachter. Xbox 360 games totaled $96 million.

Even so, there's no denying the game industry is in a slump.

“Although we expect a modest rebound in April, we expect overall game industry sales to be down approximately 10% for the first half of 2006,” Pachter said. “After April, we expect monthly next-generation software sales to remain fairly stable at around $100 million to $150 million through October (representing year-over-year growth of $80 million to $130 million), with declines of current-generation software sales expected to remain at around $130 million to $150 million monthly.”

According to The NPD Group, year-to-date total game sales are $2.2 billion (down 5.6% from last year), with hardware generating $662 million (up just under 1%), software generating $1.2 billion (down 8%) and accessories bringing in $302 million (down 7%).

Pachter forecasts relatively flat sales through the summer months, with potentially robust sales in November and December, once next-generation consoles from Sony and Nintendo are launched. But even those launches will pose problems.

Sony is expected to ship only 1 million to 2 million PS3s to North America this year, according to P.J. McNealy, video game analyst for American Technology Research. The console is expected to retail for $500.

Nintendo is likely to experience shortages of its new console as well, which is typical with any new hardware launch. Its Revolution will be priced less than Xbox 360 and PS3. Microsoft has only recently begun supplying Xbox 360 hardware to retailers, even though the console launched some months ago. Microsoft has sold just more than 1 million Xbox 360s in the United States through the end of February. NPD results for March are expected to add an additional 200,000 to 250,000 hardware units to that total installed base.

“It appears that 2006 is following a similar pattern to 2000, when the last console transition began,” Pachter said. “Consumers have slowed purchases of current-generation console software while waiting for the opportunity to purchase an incredible next-generation console, the Xbox 360, and its associated software.”

Pachter believes that for the full year, declines in current-generation software sales will be greater than contributions from next-gen software sales. He expects overall 2006 sales to be 3% lower than 2005 levels.

In March, 14 games sold more than 100,000 units each, compared to 19 games in March 2005 and only five games last month. Titles leading the sales charge include current-generation hits Disney's Kingdom Hearts II from Square Enix, The Godfather, Fight Night Round 3 and Black from EA, and next-generation hits Elder Scrolls IV: Oblivion from Take-Two Interactive, Call of Duty 2 from Activision, and Burnout: Revenge and Fight Night Round 3 from EA.

Electronic Arts brought in $105 million in March, 8% less than March 2005, even though it has sold more than 200,000 units each of The Godfather and Fight Night Round 3. Take-Two generated $45 million in sales, up 96% compared to March 2005, thanks to Oblivion (350,000 units sold). THQ's The Outfit sold 75,000 units in March, boosting the publisher to $26 million, down 34% from last year. Activision's strong sales of such titles as Call of Duty 2 brought in $20 million in March, down 17% from 2005. Atari took in $10 million, thanks to Driver: Parallel Lines (60,000 units). Atari sales dropped 41% compared to 2005.

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